During the height of the COVID-19 pandemic, PayPal (PYPL -2.27%) was a monster stock. The price soared 256% in the 16 months leading up to the peak in July 2021. Unsurprisingly, rapid growth and adoption of its payments platform excited the investment community.
But the fintech stock has had a disappointing run since then, and it now trades for about 70% off that all-time high. This is even after shares rocketed 50% higher since mid-July 2024.
There are reasons to believe that PayPal is a quality business. But is it a millionaire maker?
Steady growth
PayPal's revenue surged 21% in 2020 and 18% in 2021, thanks to strong online shopping demand. Consumers hesitated to go to brick-and-mortar stores, and they had extra cash from stimulus checks. PayPal benefited from rapidly rising total payment volume (TPV) and sales during this time, which lifted the stock.
That monster growth is no longer the case. Economic conditions have normalized, and physical shopping has returned. This hasn't prevented PayPal from still being able to expand, though.
Sales rose 6% in the three-month period ended Sept. 30, driven by 9% year-over-year TPV growth that totaled $423 billion. Alex Chriss, PayPal's chief executive officer, has done a nice job of product innovation. For example, FastLane speeds up the checkout process. And PayPal is finding success launching new partnerships with Amazon and Shopify.
Looking out over the long term, investors have every reason to be optimistic that PayPal's solid growth trajectory will continue. E-commerce represents less than 17% of overall retail spending in the U.S. PayPal's branded digital wallet, with 71% adoption among U.S. adults (and 39% for Venmo), is clearly in a favorable position.
Key competitive strengths
PayPal has been at the forefront of electronic payments for more than two decades. It has certainly developed some important competitive advantages in that time.
The brand's strength might go overlooked, but it is critical to PayPal's success. The business is known for convenient, secure, and fast payments that both consumers and merchants have come to appreciate. PayPal has developed a leading position in online commerce thanks to this.
Network effects also support PayPal's industry position. As of Sept. 30, the company had 432 million active accounts, consisting of both individuals and merchants. As more users join, the platform becomes increasingly valuable to everyone.
PayPal's ability to collect huge amounts of data on transactions is also critical. This helps reduce fraud and boost authorization rates. Additionally, the business has decided to leverage its data trove to introduce an advertising platform for merchants to better target shoppers.
The path to $1 million
It's almost impossible to predict whether a stock can turn investors into millionaires one day. However, PayPal's durable growth and competitive strengths certainly resemble traits of a high-quality business. It's also very profitable, with an operating margin in the high teens.
Another reason to be bullish is the valuation. The shares trade at a forward price-to-earnings ratio of less than 19. That's a very compelling entry point for prospective investors to gain exposure.
One area of concern the market might still have is the competitive landscape. PayPal's carved out a successful niche in the industry. However, formidable opponents are jockeying for their piece of a lucrative payments market. This just means that PayPal will have to keep finding ways of boosting engagement and monetizing this activity.
If you're able to invest a higher amount up front, as well as extend your time horizon, then maybe this stock could make you a millionaire. But putting such a lofty prediction aside, I think PayPal at least deserves a closer look from investors as part of a diversified portfolio.
